India's technology outsourcing industry was facing peak pessimism even before Donald Trump. But if the new president signs into law a draft executive order to tighten the U.S. guest-worker regime, the moment of reckoning for the likes of Tata Consultancy Services Ltd. and Infosys Ltd. could arrive much sooner than shareholders anticipate.
Since investors know very little about how the Trump order would tweak the granting of H-1B visas, they're examining the more concrete proposals in the House bill introduced by Silicon Valley Democrat Zoe Lofgren.
Even if the High-Skilled Integrity and Fairness Act of 2017 doesn't pass, it could set the tone for future legislation. Lofgren's bill pegs the pay requirement for short-term work visas at $130,000, or at the 85 percentile of systems analyst wages in the U.S. That's a sharp jump from the current minimum of $60,000, which is close to the median pay.
There's more. Currently, the annual quota of 65,000 visas -- plus another 20,000 for employees with advanced U.S. degrees -- is awarded by lottery. If the process becomes market-based, with better-paying employers getting priority, Apple Inc., Alphabet Inc., Amazon.com Inc. and Microsoft Corp. could end up hiring more engineers from India, Ireland or China.
It might have narrowed, regardless. As clients spend more on artificial intelligence, analytics, mobile and cloud, the budget for legacy IT services, such as application maintenance, declines. Indian companies woke up late to this new opportunity. As a result, they've had to invest at a substantially higher rate to gain market share.
Or at least play catch-up. The top four digital ad agencies are Accenture Interactive, IBM Interactive, Deloitte Digital and Epsilon, which, as Bloomberg Intelligence's Alex Wisch notes, have all been spawned by consulting firms. IBM, meanwhile, predicts that analytics alone will be a $315 billion market by next year, roughly triple the size of India's IT exports.
Investors are nervous about any margin sacrifice a battle for new technologies would entail. TCS is trading below 16 times expected earnings, the lowest since the 2008 financial crisis. Infosys is faring even worse. Trump hasn't brought India's outsourcing industry to the brink; but his anti-immigration stance may push it over.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services.
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